The Hon’ble High Court at Karnataka on 13.7.15 has held that the provisions of section 54F are beneficial in nature and should be interpreted liberally. Section 54F does not require that the construction of the new residential house should be fully completed within 3 years of the sale of the old property. It is sufficient if the sale proceeds are invested in the new house within the due time.
The said judgment was passed in the case of the Commissioner of Income Tax, C.R. Building, Queens Road , Bangalore, (Appellant) vs. Smt. B.S. Shanthakumari, No.187, 1st Block east Jayanagar, Bangalore – 560 022 (Respondent), being ITA No.165/2014.
The judgment was passed by the Bench comprising of Hon’ble Justice Mr. Vineet Saran and Hon’ble Justice Mr. Aravind kumar.
The appeal was filed by the revenue against the order of the Income Tax Appellate Tribunal which was passed on 13.11.2013 in ITA No.63/Bang/2013 wherein an appeal filed by the revenue was dismissed and order of the Commissioner was affirmed.
Facts and circumstances of the case:
The assessee was an individual who in the year prior to the assessment year sold her property by a deed of conveyance dated 6.10.2008 and invested the capital gains on sale of the property in purchasing a residential property on 13.10.2008.
Thereafter the assessee claimed deduction under Section 54F of the Income Tax Act, 1961 which was disallowed by the assessing officer by an assessment order dated 18.11.2011 for the reason that the assessee failed to complete the construction of the said house within the stipulated period of three years according to Section 54F of the Act.
Being dissatisfied by the said order, the assessee filed an appeal which was allowed. The Appellate Commissioner accepted the contention of the assessee by an order dated 2.11.2012.
The Revenue moved before the Tribunal which did not allow the same against which the Revenue filed an appeal before the instant Court stating that as the assessee did not comply with Section 54F of the Act and did not place any material to show that he had completed the construction within three years from date of sale of the property, he cannot avail the benefit of long term capital gains as per Section 54F of the Act.
After hearing the learned Counsel for appellant-revenue and after perusing the records, it was held that that the Tribunal was wrong in relying upon the judgment of this Court in the case of Commissioner of Income Tax vs. Sambandam Udaykumar, (2012) 81 CCH 0151, wherein it was found that the construction was almost completed for which the assessee was entitled to the benefit of Section 54F of the Act.
The Hon’ble High Court did not admit the appeal as it was found that the assessee purchased another plot on 13.10.2008 and on 02.06.2010 she obtained the sanctioned building plan from the local authority and started the construction. However, the said construction was not completed within 3 years. Hence, the assessing officer issued summons under Section 131 of the Act to the assessee to check whether she had invested the capital gains in the construction.
The assessee appeared and answered the assessing officer that due to some financial constraints, she could not complete the construction within the said period. The assessing officer rejected the claim of the assessee upon the ground that the construction has not been completed.
As such, the Assessing Officer disallowed the benefit as claimed by assessee. The assessee during the appellate proceedings produced the photographs of the residential house which was under construction to prove that the consideration received by her has been invested in purchasing the plot and for the construction.
It was also held that if the assessee has invested money in construction of the residential house, only as the construction was not fully complete or it is not in a fit condition for being occupied, cannot be a ground to deny the assessee from availing the benefit under Section 54F of the Act.
It has been held by the bench that the object of the legislature was to encourage investments in the acquiring a residential house and completion of construction is not the essence of law.
The condition precedent for claiming benefit under section 54F is that the capital gain arising from sale of capital asset should be invested by the assessee either in purchasing a residential house or in its construction.
If even after making the total payment, only as a registered sale deed had not been executed in favour of the assessee within the period stipulated, she cannot be denied the benefit of Section 54F.
In view of the above, the Appeal was dismissed. The order passed in ITA No.63/Bang/201 dated 13.11.2013 by Income Tax Appellate Tribunal, Bangalore was hence affirmed.